Apple vs. Samsung Heavyweight Battle Not Just Phones: Pro

As Apple vies against Samsung or dominance in the smartphone market, hardware sales are increasingly linked to how enthusiastically customers embrace their software, one analyst said.

Last week, a firm reported that Samsung's Galaxy S III had edged out the Apple iPhone as the world's best-selling smartphone. The two technology giants are locked in a contest of wills in a digital war selling both tablets and smartphones.

Yet with all the emphasis on hardware, observers must realize that consumers are basing their decisions in large measure on how well the operating platform performs, said Toni Sacconaghi, senior analyst at Sanford C. Bernstein.

"When people are buying an iPhone versus a Samsung Galaxy S III, they're implicitly deciding, 'I want to be on the iOS platform, or I want to be on the Android platform," said the analyst, who rates Apple as an "outperform," with an $800 price target. "So I think the two are very, very linked."

That is part of the reason why Apple has so vigorously pursued Samsung in court, accusing the South Korean technology maker of patent violations. Sacconaghi said beleaguered Apple is looking to "upend momentum" of the Galaxy phone, whose platform is based on Google's respected Android software.

A patent settlement between HTC and Apple has raised speculation that the iPhone creator could embark on a similar path with Samsung. A deal could help Apple feather its bottom line, Sacconaghi said.

Over the last year, Samsung has pushed nearly 200 million Galaxy units out the doors, Sacconaghi said, along with a smaller number of tablets.

If Apple is successful in pursuing the company for patent violations — or manages to strike an acceptable settlement deal — the math works out well for the tech giant.

"Apple actually offered $30 to $40 a unit for a royalty settlement. So even if it was $10 a unit from Samsung," Sacconaghi said, "that could be $2.5 billion in earnings power for Apple, which is certainly not immaterial."

The Cupertino, Calif.-based technology behemoth has seen its stock price plummet into bear territory recently. Investors and analysts are harboring widespread doubts about whether Apple can sustain the same pace of innovation that propelled it into the stratosphere under the late Steve Jobs.